What is implied volatility percentile (IV percentile)

Implied Volatility percentile is a ranking method to compare implied volatility to its past values. The ranking is standardized to 0-100 where 0 is the lowest value in recent history and 100 is the highest value. This value tells us how high or low the current value is compared with the past.

To better explain this, we can use an example:

OptionSamurai - Covered call results - Implied volatility Percentile
Covered call results – Implied volatility Percentile

In the table above we can see that the implied volatility percentile (we call it rank) is 34% for IBM, 55% for AA and 89% for ALTR (just 3 examples). Since we are using a 200 day look back period (almost a year), we can say that the current IV for IBM is greater than 34% of the values over the past year. Similarly, we can say that the current IV for AA is larger than 55% of the past IV values over the last year, and for ALTR – the current IV is higher than 89% of past values.

This helps us to judge quickly and easily if the current IV is high or low for a specific underlying. Here we see that ALTR IV is high, AA IV is normal and IBM IV is a little low. This will help us decide on the option strategy we will choose.

Why use Implied Volatility percentile?

  • The IV percentile allows us to gain insight into the underlying volatility quickly and easily.
  • The Percentile is an oscillated indicator and allows you to better identify the low and high points of the option IV.
  • The percentile allows us to compare different stocks and makes it a better indicator to use in market scanning.

How to scan for Implied volatility percentile in OptionSamurai?

OptionSamurai Scan for Implied Volatility
Scan for extreme IV values

 

  • Read our Implied volatility research here
  • Sign up for OptionSamurai for a free trial.

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